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In: Accounting

Pioneer, Inc., a publicly held company with a 21% marginal tax rate, paid its CEO an...

Pioneer, Inc., a publicly held company with a 21% marginal tax rate, paid its CEO an annual salary of $2.5 million.  None of the amount was a bonus.

Ignoring payroll taxes, calculate the after-tax cost of this payment.

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Expert Solution

Compute the after tax cost of this payment as follows:

Tax savings = Deduction allowed * marginal tax rate

Tax savings = 1000000 * 0.21

Tax savings = $ 210000

After tax cost = Taxable income - tax savings

After tax cost = 2500000 - 210000

After tax cost = $ 2290000

Note:

the deduction allowed is under section 162.

ekkarill92 answered 2 years ago
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